Omrix Biopharmaceuticals knew it wasn’t going to be easy before the Passover holiday. As reported in “Globes”, the company laid off half of its R&D staff at the beginning of March - 10 out of 20. It wasn’t pleasant, but there were no outbursts of bitterness or hysteria on the part of those fired; they went to look for work elsewhere.
Omrix CEO Nissim Mashiach told “Globes” at the time, “The company is stable, and our sales definitely cover our operations. We reduced our staff for long-term R&D, in view of the situation and in order to meet the budget dictated by our revenue. Long-term R&D is sometimes a luxury. Compared to the general situation in industry, particularly high tech, we don’t regard this as anything special.”
Mashiach says the layoffs were designed to meet an immediate need - The company has still not managed to raise money for its R&D activity, and had difficulty in meeting its sales targets for the both the current and previous year. Mashiach explains that cuts were necessary to improve the cash flow, in view of the negotiations with “major US companies” for US marketing rights. “It’s a long process, and the company wanted to avoid getting bogged down in negotiations when it had trouble with its cash flow,” Mashiach adds.
As if that weren’t enough, another blow to business came from the security situation. US Food and Drug Administration (FDA) representatives simply refuse to visit Israel and approve Omrix’s facilities. This problem is not confined to Omrix, but since the company has counted for a long time on getting US marketing approval, the delay is critical. “It’s a political decision, not a business one, but it’s the main stumbling block preventing the company from reaching the commercial sales phase in the US, which is the main market. Actions are underway on the political, diplomatic, and other levels to find an interim solution,” Mashiach sums up.
What is actually happening with Israel’s third largest biotechnology company?
Omrix is simultaneously in two different situation. At the same time that it is dealing with a difficult reality, it is also planning its great breakthrough. All it needs is FDA approval, which will not only constitute a final diploma, but an opportunity to begin selling on a large-scale. Another opportunity - to be fully acquired by Bio-Technology General - was missed a year ago. Bio-Technology General came, mentioned the figure of $120-140 million, checked and rechecked, and decided to abandon the deal. They left a token $5 million investment in Omrix - $2.5 million for expediting due diligence, and $2.5 million for deciding against the acquisition.
What lies in store for Omrix? The company is currently thinking about another financing round. Mashiach says a cooperative venture, if and when it is signed will cover R&D operations, but not expensive needs, such as putting together a marketing setup for the biological sealant. At the same time, if a positive event occurs, such as a new strategic partner for buying the biological sealant technology, or Omrix’s marketing rights for the US or Japan, things will begin looking up. Another possibility is a strategic partner for its peptides product, which is in the initial development phase. These possibilities could eliminate the need to raise capital. Keep in mind that two highly respected foreign funds have holdings in Omrix: MPM Capital of the US and Quartz Capital Partners of Britain.
What has happened to the company value?
Omrix VP business development Prof. Orgad Laub: “If we were to raise money now, it would be at a value of less than $105 million. Bio-Technology General had to set a value of $105 million in order not to harm any of the other investors. Things would be different in a new financing round, though. The market situation is clear to the company. It’s not that the company value has declined; the market has changed.”
Mashiach: “Without citing numbers, even though the company had advanced on both the regulatory and the marketing fronts, we still had no approval for Europe and so forth when Bio-Technology General came in, and our SIVIG activity was just beginning. On the other hand, we aren’t oblivious to what’s happening in the market. We assume the valuation will drop to about what it was in our first financing round ($77 million, A.M.).
Profits from the blood bank
Omrix has made a living since 1996 from its regular business - producing regular blood plasma products from an ongoing supply from the Magen David Adom blood bank, where the company has its headquarters. Omrix manufactures three regular plasma products: albumin, IVIG, and Factor VIII. “We’re not relying on that,” explains Mashiach during a tour of the facilities. Nevertheless, its regular products yielded Omrix sales of $15 million in 2000. Sales reached $18.5 million in 1999, but this record was achieved with the help of the Y2K bug panic. Sales will probably amount to $17 million this year, due to new competition and the confinement of sales mostly to the Israeli market, which is fairly saturated.
It should have happened sooner, but at the moment, Omrix is still waiting for its flagship product, Quixil biological sealant, to finally pick up steam. The company hopes it will be registered in 15 European countries by the end of the year, and marketing will begin soon. The company is hoping for $4 million in Quixil sales alone in 2002. Immunology products being developed are still “5-7 years” away from marketing.
Quixil sales in Britain were $1 million in 1999-2000. That, however, was when there was still no limit on indications. When only two indications were approved, sales fell slightly. Mashiach hopes that once a general marketing approval is obtained for Europe, sales will reach $4 million in 2003.
Just what is this sealant? Laub explains that after every surgical operation, there is still bleeding, even after the wound is stitched. Biological sealant is designed to imitate the body’s natural blood coagulation and prevent hemorrhaging. In an article last year on the US sealant market in the professional journal, the “American Journal of Surgery,” Omrix’s sealant was mentioned, together with its competitors’ products: Baxter’s Tisseel and Canadian company Haemacure’s Hemaseel. Companies like Japanese pharmaceutical firm Kaketsuken and VI Technologies of the US are also active in the market.
Quixil has infinite advantages over other biological sealants. Firstly, Quixil is composed of natural material made out of human components, which means it has no side effects. Laub says the competing products include components from cattle, which is liable to cause toxic shock, and explains, “There is a tendency among regulators to avoid synthetic components. Our sealant, which is completely natural, is the safest on the market.”
Another factor is the method of mixing the material, which is similar to the way epoxy resin is made. The product is comprises two materials: fibrinogen and thrombin. Both are natural coagulating proteins present in plasma. When each of the proteins is preserved in liquid form in a small bottle and then recombined in Omrix’s twin-headed syringe, the sealant is created. Coagulation occurs in a fraction of a second. The sealant can be used in ointment, droplet, or spray form. Since the sealant also includes growth factors, it should also shorten the healing process.
Tisseel, the leading competing product, has been approved for US marketing since July 2000. It comes in a kit with four or five bottles, with two powders that must be dissolved in two liquids. Mashiach: “Their sealant is not as ready to use. The process of mixing and preparing takes 20 minutes for them, at a time when the doctor is under pressure and the patient is bleeding. With us, it takes less than a minute, since it doesn’t have to be dissolved. Our patent is for the pre-prepared mixture. Our sealant also coagulates immediately; it is transparent, not opaque, like Baxter’s. The doctor can see what he’s doing and to what degree the bleeding has stopped.”
Laub: Our advantage is the speed of both the work and coagulation, which prevents loss of blood. With our competitors’ products, there are many cases in which blood continues hemorrhaging from the area of the surgery, which causes the sealant to be separated from the tissue.” Omrix is also currently preparing and registering syringes with longer catheters, which are useful for minimally invasive surgery.
As a technology platform, other agents can be combined with the sealant. For example, it can be mixed with pain-relieving drugs. Since the sealant is composed of bio-degradable material, the drugs can withstand slow release in the target area and assist recovery from surgery.
Fine and dandy - What’s the hitch?
Mashiach: “First of all, the product’s indications. As of now, it is approved in Europe for a limited number of applications - mostly liver and orthopedic surgery. We hope that by the end of the year, it will receive general approval. At the moment, that is the main obstacle.
”Production capacity is also a problem. Our facility has limited capacity - we can produce almost 1,000 liters a year.” If that sounds like a lot - it’s not. The European sealant market amounts to $150 million, or 1,500 liters, and the US market $600 million, or 6,000 liters, while Japan uses $200 million worth, or 2,000 liters.
Mashiach says another obstacle is training physicians. “We are trying to work with opinion leaders throughout the entire market. We meet with them and try to get them to try it. The product is not well known and recognized; it has a learning curve. It requires special marketing techniques that will demonstrate its use. The moment the doctor tries the product, however, he won’t want to use anything else. We entered the British market in early 1999 with just the liver surgery application. We now have 90% of the market for liver surgery sealant in all of Europe.”
The biggest problem, however, may be the price. Mashiach says, “You pay a premium of $100 per milliliter. For that, someone has to be convinced he needs it. In certain situations, you can’t get along without it. It’s not a must-have product. On the other hand, we show them that when you use our sealant, hospitalization time is shortened, and there are fewer costs for postoperative hospitalization and complications. That’s our main weapon.”
On the positive side, it can now be reported that advanced negotiations are underway with a major international firm for marketing the sealant in Mexico. Talks are currently taking place with another major international firm for marketing in additional European countries.
The future is in antibody concentrates
Omrix’s new hope is the development of drugs based on antibodies present in plasma. The most important of these drugs is IVIG, an antibody concentrate that is used either for treating patients with immune deficiency or for passive immunization. Together with Prof Yehuda Shoenfeld of the Sheba Medical Center, Omrix has developed a drug from this material for treating auto-immune diseases, in which the body wars against itself. Laub says the drug has worked well to date in clinical trials with lupus patients. The drug contains super IVIG (SIVIG), a refined material with 200 times the concentration of the original IVIG. “It benefits the patients and sometimes cures them. It’s still not even clear why,” Laub notes. In any case, the assumption is that if the treatment works with lupus, it will also work with other auto-immune diseases, such as myasthenia gravis and multiple sclerosis.
Thanks to IVIG, Omrix has also succeeded in isolating and purifying peptides, which also act as antibodies. Omrix hopes to convert them into an inoculating drug and a source for development of monoclonal antibodies that will eventually replace SIVIG. Laub says, “It will be drug that will no longer depend on its raw material.
Omrix is cooperating with the University of Florida, from which it acquired intellectual property for the purpose. The company is headed for its first human clinical trial on 30 lupus patients in New Mexico. Omrix hopes to develop a separate shelf product for every disease, and has accordingly filed patent requests (not yet approved) for 130 auto-immune diseases.
130 diseases? You certainly can't do it all by yourselves
Laub: “It’s obvious we’ll look for strategic partnerships. We presented the technology to several companies, and two of them are currently performing due diligence. One is Biogen, which is interested in the treatment for lupus, and the other is Abgenics, which is interested in manufacturing monoclonal antibodies. We’re now discussing terms and strategy.”
Mashiach: “Biogen has already been considering it and asking questions for a month. Only in recent months have we been looking for strategic partners in this field. Clearly, we’ll have to cooperate. We’re already reaching the trial phase, and that’s expensive. We can’t do it alone.”
Published by Globes [online] - www.globes.co.il - on April 28, 2002